America’s backwards coronavirus strategy

THE SENATE’S status as “the world’s greatest deliberative body”, as President James Buchanan allegedly described it, has been exaggerated for a while. Legislation is accomplished not through considered debate, but rushed, secretive crafting of law by senior party leaders on the eve of some cataclysmic deadline. In the past decade this brinkmanship has led to one struggle over “sequestration”, two debt-ceiling crises and three shutdowns of the federal government, but little in the way of substantive lawmaking. The same dynamic will shape the latest gargantuan stimulus package needed to cushion the fallout from the epidemic of covid-19. But this time, the consequences of brinkmanship and delay could be even more severe.

When Congress passed the CARES Act, a fiscal-stimulus package costing $2.2trn, in March, it included important stabilisers for an economy placed in a medical coma. Among these were much-increased unemployment benefits—boosted from $370 a week on average to $970—and a suspension of evictions and foreclosures in federally backed housing until the end of July. These measures were set to expire after four months, by which time the epidemic was expected to be under control.

That is not the case. New confirmed infections are surpassing their previous peaks in mid-April, sometimes exceeding 70,000 per day. The unemployment rate in June was 11.1%, and the Congressional Budget Office (CBO) expects it to decline only modestly to 8.4% in 2021. The “V-shaped recovery” that America had hoped for seems out of reach. About 18m are still unemployed, compared with 6m before the recession. Surveys from the Census Bureau show that 16% of adults who owe rent or mortgage payments missed them last month, and 11% report that they do not have enough to eat at least some of the time (compared with 8.8% in early March). Eviction notices, many filed by landlords who are also struggling, have begun to pile up.

Hence the need for another stimulus package. Democrats released their proposal, a $3.4trn behemoth called the Heroes Act, two months ago. Republicans have gone from suggesting a “pause” on future stimulus, as Mitch McConnell, the Senate majority leader, said in May, to agreeing that something more is needed. The Republican counterproposal, which is yet to be fully unveiled, will be more modestly priced, perhaps at $1trn or so. Neither side expects the bill to be negotiated by the end of the month, when the provisions on unemployment and evictions in the CARES Act expire. The resulting gap could up-end the lives of millions of American families and set the economy back.

Researchers from Columbia University calculate that without the enhanced safety-net benefits, the poverty rate would have risen by four percentage points, representing 12m people. Instead it has remained flat. Some of the more sophisticated proposals, such as indexing benefits to previous earnings up to a maximum level, are conceptually elegant but might delay cheques for weeks. State unemployment offices, reliant on antiquated computer software and few staff, have struggled to implement something as simple as adding $600 to every cheque. First, though Congress needs to pass a law. A better solution to avoid recurring cliff-edges—automatically tethering unemployment generosity to local unemployment rates, as Michael Bennet, a senator from Colorado, has proposed— would do a lot of good. But because it would limit political leverage in future negotiations, it is unlikely to fly this time.

The negotiations, which began in earnest only this week, must resolve many differences. Democrats would like to extend the generous unemployment benefits until the end of the year. Republicans worry that these are too generous. Indeed, for the majority of eligible workers, the benefits now exceed their former wages (see article). The Democratic proposal would send nearly $1trn to shore up the budgets of states and cities. Republicans worry that this generosity would reward profligacy in pre-pandemic times. Mr McConnell seems to have two priorities: passing a liability shield for businesses from lawsuits over covid-19 exposure and incentivising schools to reopen with cash grants. Both sides at least seem amenable to sending another unconditional cheque to Americans, regardless of employment status.

President Donald Trump is not a direct interlocutor in these negotiations, leaving Steven Mnuchin, his treasury secretary, as the administration’s ambassador. Mr Trump has offered some policy suggestions, but they are not being taken very seriously, even among senators and representatives of his own party. One is that the bill include a holiday for the payroll taxes that employers pay for Social Security and Medicare, the government programmes that provide pensions and health insurance for the elderly. This would do nothing to benefit the currently employed, but it would deplete the trust funds for both schemes. A second, reported in the Washington Post, is that the bill should strip out billions in funding for additional testing for covid-19. Mr Trump has been insisting that the rise in cases is due to the rise in tests. “Many of those cases are young people that would heal in a day,” he told Fox News. “They have the sniffles, and we put it down as a test.”

Step back, and this strategy of repeated enormous stimulus to cushion the blow of an ineffectual national strategy for containment resembles a hospital that invests mightily in palliative care while eliminating the oncology department. America has already spent 13% of GDP on fiscal stimulus, with more on the way. The most important economic policy, in the absence of a vaccine, is to contain the virus’s spread. Leaving it all up to governors no longer seems like a viable White House strategy. Nor does the campaign of attacking the public-health messenger, Anthony Fauci.

Facing flagging confidence in his handling of the crisis (and trailing in polls behind Joe Biden, his Democratic challenger), Mr Trump has resurrected his daily coronavirus briefings. Presidential leadership of this sort might be expected to add coherence and clarity to what has been a helter-skelter national strategy. In Mr Trump’s case, it’s likely to make things worse. ■